However, health insurance for S-corp owners isn't quite so easy.
Shareholders owning greater than 2% of stock must include their health insurance costs paid through the company as income
, according to Internal Revenue Code Section 707(c), making the amount subject to income tax.
Do S-corp owners get self-employed health insurance deduction?
When you're an S corporation owner with more than 2% of the company stock, you're treated the same as a self-employed person when it comes to deducting health insurance premiums. This is not a business deduction.
Can S-corp discriminate on health insurance?
There are two policies an S-Corporation can follow: To Discriminate. When the S-Corporation discriminates, or does not provide health insurance to all of it's eligible employees, health insurance premiums paid by the corporation are subject to both Social Security and Medicare taxes. To Not Discriminate.
The business must pay the S-corp owner's premiums directly
.
It must also include the premiums as gross wages in the S-corp owner's Form W-2. If the S-corp owner pays the policy premiums on their own and then gets reimbursed by the business, this does not qualify the owner for a tax deduction.
Do S corps have liability protection?
Asset protection
One major advantage of an S corporation is that
it provides owners limited liability protection, regardless of its tax status
. Limited liability protection means that the owners' personal assets are shielded from the claims of business creditors—whether the claims arise from contracts or litigation.
Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder-employee's Form W-2, subject to income tax withholding.
How much salary should S Corp owner take?
A commonly touted strategy to set your S Corp salary is to split revenue between your salary and distributions —
60% as salary, 40% as distributions
. Another common rule, dubbed the 50/50 Salary Rule is even simpler, with 50% of the business income paid in salary and 50% in profit distribution.
Is S corp health insurance subject to FICA?
Contributions made to a shareholder-employee's health benefits plan are subject to state and federal income tax withholding. However, these contributions are
not subject to Social Security and Medicare (FICA) taxes
or unemployment tax.
How do I report S corp health insurance on W-2?
The health insurance premiums paid by the S corporation are reported on Form W-2,
Box 14 S
. This is the amount the shareholder deducts on page 1 of Form 1040, line 29 (Self- employed health insurance deduction)
Does S-corp health insurance reduce basis?
As discussed, premiums are not deductible. Nonetheless,
S corporation shareholders must reduce stock basis for their allocable shares of that expense
(Sec.
Are S-corp owners considered employees?
Setting Up Payments in an S Corp
Generally,
owners of an S corp qualify as employees of the business
and must receive a salary. If you're an owner who's actively involved in managing your S corp, you're considered an employee of the company and you'll pay yourself a W-2 salary.
IRS Notice 2008-1, which outlines all the rules and regulations under which a 2 percent shareholder-employee in an S-corp can deduct accident insurance premiums and health insurance premiums, defines a 2-percent shareholder as “any person who owns (or is considered as owning within the meaning of § 318) on any day …
What can you write off with an S corp?
S-Corp Tax Deductions
Ordinary business expenses such as rent, taxes, advertising, company-provided employee benefits, depreciation and interest
can be subtracted from profits and income to arrive at the net income for the business. If this net income is negative, it is passed through to shareholders as a deduction.
Do S corps have limited life?
Existence is perpetual for S corporations. Conversely,
LLCs typically have limited life spans
. The stock of S corporations is freely transferable, while the interest (ownership) of LLCs is not.
Can I be sued personally if I am an S corporation?
You can still be sued personally, even if you operate as an S corporation.
Who pays more taxes LLC or S corp?
Typically,
an LLC taxed as a sole proprietorship pays more taxes
and S Corp tax status means paying less in taxes. By default, an LLC pays taxes as a sole proprietorship, which includes self-employment tax on your total profits.
The health insurance premiums paid on behalf of more-than-2% S corporation shareholder-employees are deductible and reportable by the S corporation as wages, the payments are included in the shareholder's wages for income tax purposes, and
the benefits are not subject to Social Security or Medicare (FICA) or
…
Tax treatment by the company
The cost of health insurance premiums paid by the S corporation for a 2% shareholder is included in the shareholder's W-2 as
Box 1 taxable income
. The amount is subject to federal income tax withholding.
A 2% shareholder is any person who owns – directly or indirectly, on any day during the taxable year – more than 2% of the outstanding stock or stock possessing more than 2% of the total combined voting power of the corporation.
Can my S Corp pay my mortgage?
A corporation cannot pay an employee's mortgage as a fringe benefit
because it is not a typical business deduction the employee would incur on his own, according to the IRS.
Do S corps pay quarterly taxes?
S-Corp owners need to make estimated quarterly tax payments
based on the estimated profit of the agency at the end of the calendar year.
How do S corps pay taxes?
S corp shareholders report income, gains, and losses from the corporation on their individual tax returns, and
pay taxes at their ordinary income tax rates
. Since the money comes to them free of corporate tax, o they avoid double taxation on any income or earnings.
